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Jul 6, 2015

Approximately 10 million Americans work in the restaurant industry, and it is one of the few industries where wages can legally be below the federal minimum wage of $7.25/hr.

Current U.S. Department of Labor figures shows 19 states still pay restaurant workers the bare “federal tipped minimum wage” of $2.13/hr, with only 7 states requiring a wage above the federal minimum. The remaining 24 states fall in the middle of that spectrum.

For decades, it has been expected that servers, busers, managers, and the like earn the bulk of their wages through tips.

Turnover crisis

But how great of a system is that in reality when the restaurant industry faces turnover rates of 44 percent-100 percent, costing them about $4.3 billion in recruiting and training costs each year?

As anyone who has worked in a restaurant before knows, it’s not the most stable job. Not everyone gets the same percentage of the tips at the end of the night, slow business can make pockets light, and a vast majority of restaurant jobs don’t include basics like health insurance, vacation/sick days, or even a reliable weekly schedule.

Take it from the employees in the trenches:

Restaurants save significantly by having waitstaff [sic] do as much work as possible. Not only is that illegal and unethical, it is one of the causes of food contamination and workplace injuries …When I was a waitress we had to clean the bathrooms and the conditions people left them in were disgusting.”

Restaurant managers, while they usually receive such basic benefits as a week of vacation and the opportunity to purchase group-rate health insurance, don’t fare much better than the average hourly employee. It is not uncommon for restaurant managers to work 60 to 70 hours per week, on their feet 12 to 15 hours a day. And managers, as well as hourly employees, are required to work sick.”

That was waitress Lynn Roach and longtime restaurant manager Lorre Fleming, respectively, commenting on the situation for a recent Bill Moyers piece. Moyers invited restaurant workers to discuss their experiences on the job, and the feedback showed that there may be a very good reason the industry’s turnover rates are so daunting.

The Hospitality Guild, an alliance of restaurant employers dedicated to promoting professionalism in the industry, puts it bluntly:

Long hours with little recognition or pay raises force workers to look for advancement by changing jobs. Low pay and little or no benefits do not help build employee loyalty. As many as 50 percent of restaurant managers report that they do not expect to be in the same job in five years.” [emphasis ours]

No tips allowed

You can definitely run a restaurant with extraordinary turnover, but why would you want to, and how long would it last? Several restaurants have gotten wise to this engagement crisis and are trying new tactics to make employees happier and healthier.

Smoke and Water, a Canadian restaurant in British Columbia, banned tipping completely last year and started paying all employees a living wage of $20-$24/hr Canadian ($18.37-$22.05 in the U.S.) for servers and $16-$18/hr Canadian (U.S. $14.70-$16.53) for kitchen staff.

Owner David Jones was tired of the “gross unfairness” that saw servers and front-end staff pocketing most of the tips while the kitchen and back-end staff get literal scraps, a common practice in many establishments. “Paying them this way allows them to carve out a career,” Jones said of the wage increase.

The increase in wages is being justified in part by an 18 percent increase in menu prices. But with the average tip sitting at 15-20 percent, customers are still paying about the same amount for a night of good service — with servers and wait staff who aren’t busy worrying about whether they’re going to be able to pay bills.

“When you take away tipping, you find you get more seasoned servers and you’re able to increase the quality of personnel you get in the back of house,” Jones added.


Bar Marco in Pittsburgh has taken trading tips for engagement a step further, offering their full-time employees a base salary of $35K plus health care benefits and 500 shares in the company. Employees are also guaranteed 40-44 hour work weeks in addition to two nights off a week and 10 vacation days a year, all in exchange for working without tips.

There is still a contingent of part-timers, but their wages are bumped up to $10-$12/hr.

Co-owner Robert Fry doesn’t plan to increase menu prices to offset the wages, instead opting to focus on expanding the menu and increasing the overall volume of sales. Fry also expects more out of his employees through the deal – he appoints them to a board and gives employment contracts, which carry several added responsibilities like attending bi-monthly finance meetings and generally behaving more like an owner than an employee.

“We want complete transparency,” Fry said. “We want people who want to be a part of what we’re doing and who want to grow with us.” The results of Fry’s experiment are yet to be seen, but we already know that the more you can get employees to think like owners, the better it is for engagement.

The Washington way

The big question is will paying wait staff a living wage impact the quality of our service and increase the price of our dinners? They’re not working for tips anymore, so who are they working for?

Well, the idea is to make them feel like they’re working for a company that cares about their well being, which can do nothing but good things for quality of service and efficiency. If there was still any doubt as to whether a restaurant can succeed while paying a living wage, one need only look to the state of Washington, whose base wage for wait staff is the highest in the nation at $9.32/hr. According to firsthand accountspaypay they have yet to experience bread lines and mass hysteria:

This idea that paying waitstaff [sic] a decent wage is going to cause service to suffer is wrong. In Washington State where I live, restaurants aren’t any more expensive here than they are anywhere else, and the waitstaff [sic] service level doesn’t suffer at all.”

The New Food Order

To be fair, there are surely restaurants that work on tips and treat their employees well and maintain a good culture.

But the main issue concerning restaurants like Bar Marco and Smoke and Water is evolving the restaurant biz into something more resembling a normal wage job, and moving away from the weird interdependence of customer tips and unfair labor practices to ensure their employees are happy and committed to working there.

Trading tips for engagement may be the most appetizing solution.

This was originally published on the Michael C. Fina blog.

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